Have We Cut State Spending?

The conventional wisdom holds that California has massively reduced government spending since the beginning of the recession in 2007. A few press accounts have picked up on talking points that Governor Brown has been known to tout: state government has shrunk, General Fund spending is down, and state employment has been reducedi. Additionally, the Senate leader frequently declares that state has cut spending by $65 billion in the last few years.

Unfortunately, the data just does not show that spending in California has declined. An analysis of data from the Department of Finance data shows:

Overall spending has grown from $194.3 billion to $213.9 from the beginning of the recession in 2007-8 to 2011-12.

Per Capita spending has increased by roughly $500 per person during that same timeframe.

General Fund spending is down while General Fund programs have continued to grow but were paid for by non-General Fund sources such as special funds and federal funds. In the case of realignment, General Fund programs were simply renamed.

State employment has grown by 20,000 in the last 10 years.

Important Budget Terminology:

General Fund Spending: When politicians talk about spending on the state budget or the state budget deficit, they are usually talking about General Fund spending. General Fund spending is spending for programs that are not paid for with special fee-supported funds or federal funding and represents approximately 67% of all state spending. General Fund revenues primarily include personal income, sales and corporation taxesiiIn the Governor's 2012-13 budget, General Fund expenditures are expected to rise by 7%, up from $86.5 to $92.6 billion.iii

Realigned State Programs: A new category of spending is associated with General Fund programs realigned to local governments in October 2011. Realigned programs continue to operate with a portion of the state sales tax and other state revenues but are operated by local agencies. Frequently, legislators act as if transferring these programs reduced state spending which is not true. These programs are simply operated at the local level using a state funding source. Realigned programs are expected to cost taxpayers $5.8 billion in 2012-13.iv

Other Funds: In addition to General Fund and Realignment spending, each agency also spends special funds, bond funds and federal funds. In 2012-13 the Governor's budget assumes that the state will spend $39.8 billion using special funds, $5 billion in bond funds and $72.8 billion in federal funds. Total spending in 2012-13 from all sources of funding is expected to top $210.1 billion.v

While General Fund Spending Is Down, Total Spending Has Been On The Rise. As General Fund resources dwindled during the recession, the state relied more and more on other funding sources to maintain programmatic spending. On the books, it looks like General Fund spending declined when in reality, General Fund programs were simply funded by fee-supported special funds and federal funds. Realignment is an example where the state simply redefined $5.6 billion in former General Fund spending as no longer General Fund. No programs have been reduced or eliminated through this process. It simply reduces spending on the state's main ledger, the General Fund ledger.

Because of the budget manipulations, General Fund spending has declined from the high of $103 billion in 2007-08 to $92.1 billion in 2011-12.viHowever, total spending grew from $194.3 billion in 2007-08 to $213.9 billion, $19.6 billion during the same time frame.vii

Per Capita Spending Grew by $500 during the recession:Per Capita spending clearly demonstrates the trend of the state's overall spending increase. The use of used fund shifts, special fund taxes and fee increases, and federal funds to avoid making permanent spending reductions and has pushed total state spending to roughly $5,800 per capita in 2010-11, up from $5,300 in 2007-08viii:

When is a "Cut" Not Really a "Cut"? For the average Californian, a spending cut means that spending is reduced year over year. In Sacramento budget speak, it means that spending did not grow at a rate that meets the expectation of advocates for the various state programs. From 2007, when the recession began, until this year, only the 2011-12 budget saw a decline in total state spending. That decline, $1.8 billion in an overall budget of $215.7 billion, represented less than 1% of the total budget. Every other budget from 2007-08 to 2012-13 saw an increase in overall spending. ix In contrast, economists found that the average family saw their personal income decline 9.9% during the recession.x

What Does $65 billion in Spending Increases Look Like?If the budget had grown by the $65 billion advocated by the spending lobby in Sacramento, General Fund spending would top $156.6 billion in 2012-13. This would represent a 71% increase in overall spending in General Fund programs in just 5 short years. Policy makers should ask whether this level of spending makes sense in light of the fact that family income declined 9.9% during the same time period and is projected to grow slowly over the next decade.

State Employment Grows While there does seem to be a relationship between the strength of the economy and state jobs, state employment has increased by more than 20,000 workers over the last 10 yearsxi. In fact, state employment grew during the first two years of the recession, topping out at 350,609.

There have been some position reductions associated with the Governor's hiring freeze and workforce cap. But the Governor last year requested and received several hundred new positions. Most pointedly, there is a little evidence so far that the realignment initiative, which shifted $5.6 billion in state programs to local agencies, has resulted in mass layoffs for state workers, even as programs are shifted to local control using state funds. In fact, state employment has grown from 341,000 employees to just under 344,000 employees since the Governor took office.

vi The Department of Finance scores General Fund spending in 2011-12 as $86.5 billion. However, this discounts the fact that $5.6 billion in General Fund programs continue but have been shifted to local agencies to administer. These programs continue and do not constitute a true reduction in General Fund expenditures since they are being funding with 1.065% of the state sales tax and a new fee administered by the state. This brings total apples to apples General Fund spending to $92.1 billion.